In its half-yearly result, the bank said that the US Federal Housing Finance Agency (FHFA), which manages Fannie Mae and Freddie Mac, is going ahead with its legal proceedings against the bank over marketing of bad mortgages.
HSBC said in a filing, "Based upon the information currently available, it is possible that these damages could be as high as USD 1.6 billion."
In 2011, FHFA filed a total of 18 lawsuits against financial organizations involving $200bn claim of mortgage-backed securities sold to Fannie and Freddie by giving materially false statements about the quality of mortgages.
Fannie and Freddie, which busted in 2008, and were undertaken by the federal government, purchased $200bn of MBS, and sustained huge losses as house owners failed to pay their loans, claims FHFA.
Most recently, the Bank of America (BofA) also said that it might also face potential civil charges from the US Justice Department pertaining to the disposal of one or two mortgage bonds.
In May, Citigroup entered into an agreement to settle the lawsuit with the US FHFA, which blamed the bank for misguiding Fannie Mae and Freddie Mac to purchase $3.5bn of risky mortgage-backed securities.
